Analyze the SR and LR impact of a rise in Taxes (T) on the economy. Note that higher Taxes affect disposable income. Assume that the economy starts in General Equilibrium. 1. Now show the impact of the fall in optimism on the IS-LM diagram and the AD-AS diagram BOTH in SR and LR. No discussion. Clearly show & label the SR impact and the LR impact in both diagrams. 2. Now use the "time diagrams", to show the impact of this shock over time on the following 2 variables: real interest rate (r) and real money demand.

Analyze the SR and LR impact of a rise in Taxes (T) on the economy. Note that higher Taxes affect disposable income. Assume that the economy starts in General Equilibrium. 1. Now show the impact of the fall in optimism on the IS-LM diagram and the AD-AS diagram BOTH in SR and LR. No discussion. Clearly show & label the SR impact and the LR impact in both diagrams. 2. Now use the "time diagrams", to show the impact of this shock over time on the following 2 variables: real interest rate (r) and real money demand.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

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